How Tax Law is Affecting (Your) Giving

Your support for MAM matters more now than ever before! Here is what our friends at Charity Navigator have to share about the changes in tax laws:

Earlier this year, you may remember hearing about the implications of the tax law changes on charitable giving. The Tax and Jobs Act of 2017 aimed to simplify filing by increasing the standard deduction, which should make many middle-income Americans happy – after all, putting “simplify” and “taxes” in the same sentence should make us feel like we are heading in the right direction. And yet, as with just about any financial policy and tax change, “simple” is anything but.

Keep reading to learn more about the way the tax changes are affecting your favorite organizations and what they mean for you as a donor...

The 2017 tax reform, and specifically the increased standard deduction, reduced a tax benefit to many middle-income Americans who make charitable contributions. Specifically, the standard deduction was doubled from approximately $12,000 for married couples filing jointly to $24,000 (or for individuals, from approximately $6,000 to $12,000). As a result of this change, The Tax Policy Center estimates:

the number of itemizers dropped from 37 million in 2017 to 16 million in 2018;

the number of middle-income households claiming a charitable deduction declined from 17% in 2017 to likely less than 6% in 2018;

the 39% of households earning $86k-150k that itemized in 2017 likely decreased to about 15%.

The Tax Policy Center also reported 64% of households paid less in income taxes under the 2017 tax reform than they would have under the old laws. In theory, that means that nearly two-thirds of us have more money in our pockets. Interestingly, though, a disproportionate number of taxpayers think they paid more in taxes this year, for all sorts of reasons that we won’t get into here, which doesn’t incline one to actually spend more. The marginal tax benefit of charitable giving decreased the most for moderate-income itemizers and the least for wealthier Americans. I’ll stop throwing wonky tax numbers at you and leave it with this:

Giving USA 2019 found there was an overall decrease in giving by 1.7% (adjusted for inflation) from 2017 to 2018. While there are many variables at play, many experts attribute this decrease to the tax reform disincentivizing itemized donations. This translates to the nonprofit organizations receiving billions of dollars less year over year. These gifts were historically comprised of many, many $10 to $1,000 gifts that Americans made to their favorite causes every year.

Certainly, some taxpayers weren’t really aware of all the changes to the tax law during 2018 or, even if they were, may not have those top-of-mind as they were going about their normal consumer activities. Even those who were aware didn’t necessarily know if they would be among those who would still benefit from itemizing and went through the entire exercise of calculating all of their potential deductions to see how their own numbers shook out. Now we know, and personal knowledge will shape our behavior going forward.

The second contrary opinion: People give because they want to, not because they get a tax break. I love that ideology and I want to believe it. Nothing would make all of us in the philanthropic world happier than to find out that lo and behold, all these many years when we thought “your gift is tax-deductible” was a compelling statement, we were wrong. But, we can’t deny that the possibility of a little bonus at tax time doesn’t hurt. December 31 is by far the biggest giving day of the year because there’s a sense of time running out. What’s the difference between giving at 11:55pm on the 31 and any time on January 1? Nothing, except how long you have to wait to claim it on your taxes. If you still don’t believe me, ask any donor services manager at any nonprofit about how many calls and emails they receive between January and April from donors who can’t find their donation receipts.

The third “what’s the big deal” opinion on this issue is that yes, perhaps the Average Joe taxpayers will give a little less, but the wealthier Americans are as generous as ever and they can more than cover the difference. Whenever I hear that a little part of me withers up and dies. The very essence of charitable giving in the United States – what makes it such a critical part of our social fabric – is the egalitarian participation by so many. Yes, wealthy donors make large donations that, in and of themselves, can create meaningful change, for which nonprofits are very grateful. But it is the everyday givers who truly fuel philanthropy. The list of organizations partially funded by the mega-donors is relatively minuscule. It is the collective of the many smaller gifts from millions of people who care about different issues and causes that fuel all the amazing work in our communities and around the world. Financial details aside for a moment: Would we really want a small number of people to decide which causes get funded and which do not? Of course not. It’s the combination of large and moderate gifts, along with corporate and institutional funding, that truly drive the splendid breadth of local and global solutions every day.

So, problem identified. Now a path forward. To remedy this situation, identical legislation – The Universal Charitable Giving Act - was introduced in both the House and Senate. The House Bill (H.R. 3988) was introduced by Congressman Mark Walker of North Carolina, while the Senate Bill (S. 2123) was introduced by Senator James Lankford of Oklahoma. Under the legislation a married couple filing jointly, who use the standard deduction could deduct up to $8,000 for charitable contributions (1/3 of the $24,000 standard deduction), while a single taxpayer using the standard deduction could deduct up to $4,000 for charitable contributions (1/3 of the $12,000 standard deduction) – on top of the standard deduction. But, before this can gain any ground in Congress, we’ll need to see the fiscal price tag associated with this Act revised by the Joint Committee on Taxation. While re-establishing a tax benefit isn’t going to suddenly transform charitable giving, it would be an important step in the right direction.

The Universal Charitable Giving Act encourages all Americans – regardless of their level of income – to support charitable causes. In so doing, the organizations embedded in the communities and causes they serve can continue to do their best to help carry out their vital missions. But tax law revisions are not going to be a quick fix. In the meantime, it’s incumbent upon all of us everyday donors to keep charitable giving at the forefront of our spending priorities.

Philanthropy in the U.S. is a long-standing partnership between donors and nonprofits that stands alongside our government to address social and environmental needs. And while Americans are among the most generous people in the world, we need a tax code that encourages charitable giving – by all Americans, regardless of income – so that nonprofits can continue to help those most in need.

Written by Shannon McCracken, CEO of The Nonprofit Alliance. The Nonprofit Alliance serves as a voice of the nonprofit community to promote, protect, and strengthen the philanthropic sector in the best interests of donors and beneficiaries. You can learn more here: https://tnpa.org